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Budget Deal: SSDI Gets A Bailout from Social Security Trust Fund

The latest reports on the budget deal show some entitlement changes coming to Social Security Disability Insurance (SSDI) and the Social Security Trust Fund. The text of the bill is here.

According to analysis of the deal, spending would be increased “by $80 billion over two years, not including a $32 billion increase included in an emergency war fund. Those increases would be offset by cuts in spending on Medicare and Social Security disability benefits.”

The deal sought some much needed structural changes to the SSDI program, because it was slated to reach insolvency sometime in 2016 — which, of course, would play right into the Presidential election cycle.

Some of the proposed changes include: “a medical exam now required in 30 states before applicants could qualify for benefits would be required in all 50 states. That change was projected to save the government $5 billion.”

Another reform looks to be restructuring work and benefits reviews, “in which some people who receive disability benefits could earn money from working with less fear of triggering a review that can result in benefits being cut off. Instead, people participating in the projects could see their benefits gradually curtailed as their income rises … ”

While these changes are a start, they come at a price that no one in the media is really talking about in depth. The NYTimes casually mentions that there were be a reallocation of “funds among Social Security program trust funds to ensure solvency of the disability insurance program.” That sounds well and good, until you get to the details.

The reallocation of roughly $150 billion over the next three years comes from the Social Security Trust Fund in order to rescue the nearly bankrupt SSDI Trust Fund; in other words, we are borrowing money from one entitlement program to another!

SSDI was slated to receive across-the-board 20% cuts in 2016 as a way to deal with its nearly-depleted funds. But that is a very messy topic for a very messy election year. This deal papers over the SSDI funding problem — infusing it with cash from Social Security over the next three years, and extending the insolvency question for the disability question until around 2022.

“Congress has been kicking the can down the road on disability insurance reform for decades and 2016 should have been the end of the road—time for meaningful reform. Instead, policymakers want to provide a little more roadway for the disability insurance program by whacking off a portion of Social Security’s roadway.

This isn’t the first time the disability insurance program has run out of money and it isn’t the first time Congress has kicked the can down the road. As recently as 1994, the disability insurance program was about to run out of money and Congress increased the disability insurance payroll tax by 50 percent, from 1.2 percent to 1.8 percent. That increase was coupled with a stark warning that the disability insurance program was in dire need of additional reforms to sustain it over the long run.

What has Congress done to reform the disability insurance program since then? Nothing.

Rather than looking to improve the efficiency and integrity of the program, Congress sat idly by as the percent of the working-age population receiving disability insurance benefits increased from 2.8 percent in 1994 to 5.1 percent today.”

This cash infusion — from Social Security of all places! — merely obfuscates the larger question of true entitlement reform. Using Social Security Trust Fund money was a perfect cover for lawmakers because it can be explained as a routine “reallocation of Social Security funds”, without explaining it is essentially robbing Peter to pay Paul. It is a known fact that both programs are slated to run out of money in the future. This deal just extends the life support for one program, while shortening the life of another.

Though lawmakers made a few minor changes to SSDI, it wasn’t enough. There are major systemic problems with SSDI. Just last month, a report by the Government Accountability Office (GAO) found that for 5 years (FY2009-FY2013), disability payments totaling $371.5 million were overpaid to many individuals — all while the program is running out of money. In this instance, “the SSA’s ‘internal controls’ rely on beneficiaries to self-report overpayments.” Why not fix this problem? Start somewhere. But that would be hard. It’s easier to throw new money at the problem (again) instead of actually tackling tough entitlement reform, thereby kicking the can down the road for future lawmakers to deal with (again). All this deal did was hide the problem so that it did not become an issue for any of the Presidential candidates next year.

Last January, I wrote on this topic, reporting a conversation with Charles Blahous, (a Trustee of the Social Security and Medicare Trust Funds,) about the Social Security situation. Blahous described how “the problem is not that disability needs a bigger share of the overall payroll tax than it now has, but that Social Security as a whole faces a financing imbalance that needs to be corrected. The single most irresponsible response to the pending [disability insurance] trust fund depletion would be to do nothing other than paper it over with a reallocation of funds, delaying meaningful corrective action as long as possible.”